Second-Quarter 2014 Earnings Conference Call. August 6, 2014

Transcription

1 Second-Quarter 2014 Earnings Conference Call August 6, 2014

2 Investor Notices Safe Harbor Some of the information provided in this presentation includes forward-looking statements as defined by the Securities and Exchange Commission. Words such as forecasts," "projections," "estimates," "plans," "expectations," "targets," and other comparable terminology often identify forward-looking statements. Such statements concerning future performance are subject to a variety of risks and uncertainties that could cause Devon s actual results to differ materially from the forward-looking statements contained herein, including as a result of the items described under "Risk Factors" in our most recent Form 10-K; and the items described under "Information Regarding Forward-Looking Estimates" in our Form 8-K filed August 6, Cautionary Note to Investors The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This presentation may contain certain terms, such as resource potential and exploration target size. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available from us at Devon Energy Corporation, Attn. Investor Relations, 333 West Sheridan, Oklahoma City, OK You can also obtain this form from the SEC by calling SEC or from the SEC s website at NYSE: DVN Slide 2

3 Second-Quarter 2014 Highlights Completed portfolio transformation announced late last year Contracted to sell U.S. non-core assets for $2.3 billion Delivered U.S. oil production growth of 79% year over year (1) Achieved excellent well results in the Delaware Basin Eagle Ford contributed a full quarter of production Increased operating cash flow 47% year over year Completed several major projects Jackfish 3 Access Pipeline Victoria Express Pipeline (1) Excludes assets sold or contracted to sell. Slide 3

4 Delivering Strong Oil Growth Q Results Total Oil Production (1) (MBOD) U.S. Oil Production (1) (MBOD) Q4 2014e Product Mix (1) % 37% 71 20% Q Q U.S. Canada Q Q Oil NGLs Natural Gas (1) Excludes assets sold or contracted to sell. Slide 4

5 Higher Revenues & Expanding Margins Oil-Weighted Upstream Revenue Increased 42% Year over Year Pre-Tax Cash Margin per BOE (1) Q Revenue Mix $ % $ % 27% Oil NGLs Natural Gas Q Q (1) Pre-tax cash margin is defined as unhedged upstream revenues and midstream operating profit less LOE, production & property taxes, G&A and net financing costs, divided by BOE production. Slide 5

6 Non-Core Asset Sales Sharpening The Focus Announced U.S. non-core assets sale for $2.3 billion (June 30, 2014) Accretive transaction: 7 times 2013 EBITDA Expected to close in the third quarter of 2014 Total U.S. & Canadian divestiture proceeds: >$5 billion (pre-tax) Accretive transactions: 7 times 2013 EBITDA Completes portfolio transformation announced late last year Proceeds utilized to repay debt from Eagle Ford transaction NYSE: DVN Slide 6

7 Devon Today Sharpening The Focus Q net production:620 MBOED (1) Devon s Core & Emerging Assets Oil & NGLs 60% of production by year-end Deep inventory of oil opportunities Top-tier Eagle Ford development High-quality Permian Basin position World-class heavy oil projects Upside potential in emerging plays Heavy Oil Rockies Oil Core Emerging Strong liquids-rich gas optionality EnLink ownership valued at $8 billion Additional midstream value in Access and VEX pipelines (1) Excludes assets sold or contracted to sell. Anadarko Basin Permian Basin Eagle Ford Mississippian- Woodford Barnett Shale NYSE: DVN Slide 7

8 2014 Production Growth Targets Total Oil Production (1) (MBOD) U.S. Oil Production (1) (MBOD) BOE Production (1) (MBOED) e U.S. Canada (1) Excludes assets sold or contracted to sell e e 6:1 20:1 Slide 8

9 2014 E&P Capital Program Delivering Strong Oil Growth 2014 E&P Capital Budget $ Billion (1) E&P Capital Spent ($B) (1) % of Budget 11% 7% 2% 5% 5% 21% Permian Basin Eagle Ford Heavy Oil Emerging Oil 28% 21% Anadarko Basin Barnett Shale Other Non-Core Assets Q $1.2 23% Q $1.3 24% 1 st Half Total $2.5 47% $0.1 billion of 1 st half E&P capital related to non-core divestitures Non-E&P capital (excluding EnLink) trending toward midpoint of guidance (1) Excludes Eagle Ford and Cana-Woodford acquisitions. Slide 9

10 Potential Drop Down Asset Access Pipeline (Heavy Oil Midstream) JACKFISH & PIKE Three 180 mile pipelines from Sturgeon Terminal to Devon s thermal acreage 30 miles of dual pipeline from Sturgeon Terminal to Edmonton Devon ownership: 50% $1B invested to date Sturgeon Terminal EDMONTON 16 Diluent Line (Edmonton to Jackfish Area) 24 Diluent Line (Sturgeon to Jackfish Area) 42 Blend Line (Jackfish Area to Sturgeon) 30 Blend Line (Sturgeon to Edmonton) Oil Pipelines HARDISTY Express P/L To U.S. Rockies Capacity net to Devon: Blended bitumen: 170 MBOPD Diluent: 95 MBPD Expandable with additional investment Access to Edmonton refining and rail, west coast waterborne and U.S. markets Flexibility enhances economics Slide 10

11 Potential Drop Down Asset Victoria Express Pipeline (VEX) (Eagle Ford) Gonzales Colorado 56 mile crude oil pipeline from Eagle Ford core to Port of Victoria terminal Lavaca Wharton 50 MBOPD start-up capacity (expandable) DeWitt Jackson 300,000 barrels of storage available Karnes Victoria Matagorda Provides additional market options for crude and condensate Goliad Calhoun Port of Victoria Devon ownership: 100% $70 MM invested to date Victoria Express Pipeline (VEX) Refugio Aransas Gulf of Mexico Currently operational Devon Acreage NYSE: DVN Slide 11

12 Preliminary 2015 Outlook Total Oil Production (1) (MBOD) Key Highlights On track to deliver 2015e oil production growth >20% (1) Driven by Eagle Ford, Permian and Jackfish Expect top-line production in the mid-single digits High-margin production growth expected to further expand operating margins 2014e 2015e (1) Excludes assets sold or contracted to sell. Slide 12

13 Delaware Basin Delivering Outstanding Well Results Eddy Central Activity focused on repeatable, high-impact Bone Spring Brought 22 wells online in Q2 30-day IP rate: 660 BOED Recent Delaware Sands success Two high-rate wells in Q2 30-day IP rate: 1,000 BOED (70% oil) Lea Operated rig count: 12 New Mexico Texas 2014 plans: Drill 150 wells Loving Bone Spring 285,000 net acres Delaware Sands 80,000 net acres NEW MEXICO OKLAHOMA Reeves Ward Winkler Leonard Shale 60,000 net acres Wolfcamp >100,000 net acres TEXAS Slide 13

14 Disciplined Risking Methodology Multi-Variant Analysis Multi-disciplinary, multi-variant analysis Geology Geophysics Utilizes geologic, geophysical, completion and production data Allows us to characterize and predict future reservoir performance Multi-variant model removes engineering and G&G bias Completions Production Approach utilized across portfolio, including Delaware Basin NYSE: DVN Slide 14

15 Disciplined Risking Methodology Delaware Basin Inventory Formation Net Prospective Acres Risk Factor (1) Net Risked Acres Risked Wells Per Section Gross Risked Undrilled Locations Delaware Sands 160,000 50% 80, Leonard Shale 85,000 30% 60, Bone Spring 440,000 35% 285, ,500 Wolfcamp >100,000 n/a >100,000 n/a Under Evaluation Other (Yeso & Strawn) 40,000 50% 20,000 4 >200 Total >500,000 >5,000 (1) Risking includes historical well performance, geologic characteristics, technical evaluation and economic risk factors. Slide 15

16 Eagle Ford Production Results and Outlook 2014 Results to Date (MBOED) Multi-Year Production Outlook (MBOED) > (1) 49 March 2014 Q June 2014 (1) Represents Devon s estimated net production from March through December. 2014e Slide e

17 Lower Eagle Ford Upside Lavaca County Devon s Lavaca County Pavlicek Un 2H 24-Hr IP: 1,319 BOED Zebra Hunter 2H 24-Hr IP: 1,511 BOED Zebra Hunter 3H 24-Hr IP: 2,250 BOED Gonzales Pavlicek Un 5H 24-HR IP: 1,411 BOED Welhausen B 1H 24-Hr IP: 1,446 BOED Lavaca Ronyn 1H 24-Hr IP: 1,585 BOED Net acres: 32,000 Significant upside potential Early results exceeding expectations Lower Eagle Ford Activity Industry Devon Operated DeWitt Devon acreage NYSE: DVN Slide 17

18 Upper Eagle Ford Potential OKLAHOMA Sustr #1H 24-Hr IP: 1,054 BOED Targac #1H 24-Hr IP: 1,398 BOED Encouraging industry results TEXAS Fojtik #1H Pay thickest in DeWitt County 24-Hr IP: 1,209 BOED Martinsen 2H 24-Hr IP: 1,360 BOED Spud first well in Q3 Gonzales Welhausen A 2H 24-Hr IP: 2,165 BOED Additional test planned for later this year Medina 2H Drilling Lavaca Net Pay (ft.) Upper Eagle Ford Activity DeWitt Slide 18 Recent Industry Results Devon Operated Location Devon acreage

19 SAGD Heavy Oil Developments Jackfish & Pike SAGD Characteristics: Jackfish 2 Jackfish 1 T76 Low F&D Low geologic risk Flat production profile Jackfish 3 T75 Long reserve life >20 years Pike Project Area T74 Jackfish 1 & 2: Q production: Access Pipeline 6 Miles R8 R7 R6 R5 R4 T73 Gross production: 60 MBOPD (3% increase YOY) Net production: 52 MBOPD Delivering top-tier operating results at J1 Jackfish 3: Jackfish Acreage (100% WI) Pike Acreage (50% WI) Access Pipeline (50% Ownership) BRITISH COLUMBIA Jackfish & Pike ALBERTA Ft. McMurray Edmonton Calgary Plant start-up began in July Slide 19

20 Jackfish SAGD Developments Significant Free Cash Flow Generation Free Cash Flow Outlook $1,200 $1,000 $ in millions $800 $600 $400 $200 $0 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e Assumptions: 1) $90 WTI oil and $4.50 Henry Hub natural gas 2) Bitumen realizations at 65% of WTI 3) Non-fuel operating costs of $12 per barrel 4) Free cash flow is after maintenance capital (average of $300 million per year) and before income tax. NYSE: DVN Slide 20

21 Cana-Woodford Completions Enhanced Old Design: 10 Frac Stages 40 Perf Clusters Sand: 3.5 MM lbs. Fluid: 130k Bbls. New Design: 20 Frac Stages 80 Perf Clusters Sand: 6.0 MM lbs. Fluid: 140k Bbls. NYSE: DVN Slide 21

22 Cana-Woodford Q2 Results Liquids-Rich Core 30-Day IP Rates (MBOED) 1,250 EURs (MMBOE) Type Curve Q2 Results Cost Per Well ($MM) $8.0 $ Type Curve Q2 Results 2014 Type Curve Q2 Results Slide 22

23 Cana-Woodford Production Revitalizing Base Production Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Gross Operated Production Acid Treatments MMCFD NYSE: DVN Slide 23

24 Cana-Woodford Acquisition Accelerating Activity Dewey Acquired 50,000 net acres (announced May 2014) Directly overlaps existing leasehold Blaine Kingfisher Increases Cana position to 280,000 net acres Improved completion design enhancing returns Workover activity yielding excellent results Custer OKLAHOMA Canadian Cana Plant Significant undrilled well inventory Total Cana risked locations: >5,000 Running around 10 rigs next year with partner TEXAS Caddo Grady Existing Devon acreage Acquired acreage Slide 24

25 Rockies Oil Powder River Basin MONTANA Net acreage: 150,000 WYOMING Stacked oil targets (Parkman, Turner, Frontier & others) Activity focused on repeatable Parkman formation Current Focus Area Two high-rate wells in Q2 30-day IP rate: 950 BOED (95% light oil) Risked drilling inventory: 1,000 (75% Parkman) CAMPBELL Expected to add 4 th rig by year-end Accelerating development activity in 2015 Devon acreage Slide 25

26 Q & A

27 Discussion of Risk Factors Information provided in this presentation includes forward-looking statements as defined by the Securities and Exchange Commission. Forward-looking statements are identified in this presentation as forecasts, projections, estimates, plans, expectations, targets, opportunities, potential, outlook, etc. and are subject to a variety of risk factors. A discussion of risk factors that could cause Devon s actual results to differ materially from the forward-looking statements contained herein are outlined below. The forward-looking statements provided in this presentation are based on management s examination of historical operating trends, the information which was used to prepare reserve reports and other data in Devon s possession or available from third parties. Devon cautions that its future oil, natural gas and NGL production, revenues and expenses are subject to all of the risks and uncertainties normally incident to the exploration for and development, production and sale of oil, gas and NGLs. These risks include, but are not limited to, price volatility, inflation or lack of availability of goods and services, environmental risks, drilling risks, political changes; changes in laws or regulations, the uncertainty inherent in estimating future oil and gas production or reserves, and other risks identified in our Form 10-K and our other filings with the SEC. Specific Assumptions and Risks Related to Price and Production Estimates Prices for oil, natural gas and NGLs are determined primarily by prevailing market conditions. Market conditions for these products are influenced by regional and worldwide economic conditions, weather and other local market conditions. These factors are beyond Devon s control and are difficult to predict. In addition to volatility in general, Devon s oil, gas and NGL prices may vary considerably due to differences between regional markets, differing quality of oil produced (i.e., sweet crude versus heavy or sour crude), differing Btu contents of gas produced, transportation availability and costs and demand for the various products derived from oil, natural gas and NGLs. Substantially all of Devon s revenues are attributable to sales, processing and transportation of these three commodities. Consequently, Devon s financial results and resources are highly influenced by price volatility. Estimates for Devon s future production of oil, natural gas and NGLs are based on the assumption that market demand and prices for oil, gas and NGLs will continue at levels that allow for profitable production of these products. There can be no assurance of such stability. Most of Devon s Canadian production of oil, natural gas and NGLs is subject to government royalties that fluctuate with prices. Thus, price fluctuations can affect reported production. Estimates for Devon s future processing and transport of oil, natural gas and NGLs are based on the assumption that market demand and prices for oil, gas and NGLs will continue at levels that allow for profitable processing and transport of these products. There can be no assurance of such stability. The production, transportation, processing and marketing of oil, natural gas and NGLs are complex processes which are subject to disruption due to transportation and processing availability, mechanical failure, human error, meteorological events including, but not limited to, hurricanes, and numerous other factors. The following forward-looking statements were prepared assuming demand, curtailment, producibility and general market conditions for Devon s oil, natural gas and NGLs will be substantially similar to those of 2013, unless otherwise noted. AssumptionsandRisksRelatedtoCapitalExpendituresEstimatesDevon s capital expenditures budget is based on an expected range of future oil, natural gasandnglpricesaswellastheexpectedcostsofthecapitaladditions.shouldactualpricesreceiveddiffermateriallyfromdevon spriceexpectations for its future production, some projects may be accelerated or deferred and, consequently, may increase or decrease capital expenditures. In addition, if the actual material or labor costs of the budgeted items vary significantly from the anticipated amounts, actual capital expenditures could vary materially from Devon s estimates. Assumptions and Risks Related to Marketing and Midstream Estimates Devon cautions that its future marketing and midstream revenues and expenses are subject to all of the risks and uncertainties normally incident to the marketing and midstream business. These risks include, but are not limited to, price volatility, environmental risks, mechanical failures, regulatory changes, the uncertainty inherent in estimating future processing volumes and pipeline throughput, cost of goods and services and other risks. Slide 27

28 Non-GAAP Reconciliation Net Debt Devon defines net debt as debt less cash and cash equivalents. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash to repay debt. RECONCILIATION TO GAAP INFORMATION (in billions) June 30, 2014 Total debt (GAAP) $12.4 Adjustments: Cash and cash equivalents 1.7 Net debt (Non-GAAP) $10.7 Net debt associated with EnLink 1.7 Devon stand-alone net debt (Non-GAAP) $9.0 Note: The United States Securities and Exchange Commission has adopted disclosure requirements for public companies such as Devon concerning Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles). The company must reconcile the Non-GAAP financial measure to related GAAP information. Slide 28